Taxpayers surprised this filing season that they could not claim certain tax breaks may find relief for their 2018 returns from federal tax extender legislation. The Tax Cuts and Jobs Act (TCJA) made a number of significant changes for 2018 but did not renew some temporary tax breaks that typically get extended by Congress annually or bi-annually.
There are close to 30 so-called “tax extenders” that expired at the end of the 2017 tax year. Most of these extenders are rather narrow tax breaks that affect businesses and individuals. Bipartisan legislation has been introduced in Congress to extend many of the provisions for 2018 and 2019. While it is still uncertain whether the legislation will be enacted, it would have an impact on the 2018 returns of taxpayers.
If the legislation is enacted, then taxpayers that have already filed their 2018 return would need to file an amended return in order to claim the tax break unless IRS guidance provides otherwise. Taxpayers who filed for an extension will want to wait as long as possible to file their 2018 return to ensure that the legislation is enacted and the tax break is extended.
Extending Energy Credits
There are a number of extenders that provide a tax credit for the purchase of energy saving property. The extenders vary depending on when the property is purchased or when it is placed in service. They include the following tax credits:
- the nonbusiness energy property credit available to individuals for the installation of certain building envelope property, furnaces, air conditioners, water heaters, etc.;
- the new qualified fuel cell motor vehicle credit; and
- the 2-wheeled plug-in electric vehicle credit for electric motorcycles acquired by the end of the tax year.
Also, there are a number of tax breaks that encourage the production and use of alternative fuels including:
- the credit for the installation of alternative fuel vehicle refueling property that dispenses alternative fuels including ethanol, biodiesel, natural gas, hydrogen, and electricity;
- the credit the production of certain types of biofuel called the second generation biofuel producer credit;
- the credit for producing certain biodiesel, including renewable biodiesel, biodiesel mixtures, and small agri-biodiesel but the taxpayer may credit for biodiesel may be claimed against excise tax liability; and
- the excise tax credit for alternative fuels and alternative fuel mixed with traditional fuel used in a motor vehicle, motor boat, or airplane.
Extending Cost Recovery of Business Expenses
Some of the tax-extenders involve the recovery of cost of certain business expenditures through expensing and depreciation. The expensing provisions include:
- the deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings;
- the election to expenses up to $15 million of the cost for qualified film, television, and theatrical productions in the year of the expenditure;
- the election to expense 50 percent of the cost of mine safety equipment in the tax year in which it is placed in service;
Depreciation items that may be extended for the 2018 tax year include:
- a 3-year recovery period for race horses that are two-years old or younger;
- a 7-year recover period for a motorsports entertainment complex that is permanently situated on land and that hosts one or more racing events within 36 months of its placed-in-service date;
- the special recovery periods for Indian reservation property for both regular income tax and alternative tax liabilities; and
- the additional 50-percent bonus depreciation for second generation biofuel plant property such as cellulosic biofuel properties.
Extending Business Tax Credits
For businesses, there are a number of tax credits that are part of the general business credit claimed on Form 3800 that may be extended for the 2018 tax year. They include:
- the credit for the production of electricity from certain renewable sources at a qualified facility in the United States, the construction for which has commenced before the end of the tax year, as well as coal produced on land owned by an Indian tribe;
- the credit for eligible contractors who build new energy-efficient residential homes, including a manufacturer of energy-efficient manufactured homes;
- the 50-percent credit for qualified railroad track maintenance expenditures paid or incurred by an eligible small and mid-sized railroad companies;
- the employer credit for the training program costs incurred with respect to each qualified mine rescue team employee;
- the Indian employment credit on the first $20,000 of wages and employee health insurance costs paid to or incurred with respect to each qualified employee who works on an Indian reservation; and
- the tax benefits for certain businesses and employers operating in empowerment zones including tax-exempt bond financing, a credit for employers who hire qualifying employees, accelerated depreciation deductions on qualifying equipment under section 179, and deferral of capital gains tax on the sale of qualified assets sold and replaced.
Individual Deductions in the Extenders
For individual taxpayers, there are a few tax-extender provisions that may affect their 2018 returns. They include:
- the itemized deduction of mortgage insurance premiums as mortgage interest on Schedule A, though the deduction phases out if the taxpayer’s AGI exceeds $100,000;
- the ‘above-the-line’ deduction for tuition and fees of the taxpayer, a spouse, or dependents; and
- the exclusion from gross income of up to $2 million of discharged qualified principal residence.
The tax extender legislation pending before Congress would also extend the 7.5% AGI threshold for the itemized deduction of medical expenses for the 2019 tax year. The threshold is already 7.5% percent of 2018, but is scheduled to increase to 10% of AGI for 2019 without a change.
By John Buchanan, JD, LLM